The activist investor's Trian Fund Management has sold part of the stake it disclosed when he pounced on the trust bank in October 2011, demanding a turnaround, according to people familiar with the decision.

While Trian pocketed a profit on the sale, the move came at a per-share price far below what Peltz and the firm's two other founding partners stated State Street would be worth if it followed their "action plan."

It isn't clear how many State Street shares still are held by Trian or how much it walked away with after reducing the stake near the end of last year. State Street shares closed on Monday at $56.39 in New York Stock Exchange composite trading. The size of Trian's stake is likely to be disclosed next month as part of the New York investment firm's overall holdings.

The stock has been buoyed by planned cost cuts that include nearly 3,000 job cuts, increased dividends and share buybacks by the Boston company. Shares jumped earlier this month when the company said it would cut more jobs and look to increase the buyback.

State Street traded near $34 when Trian announced its stake and threatened to "become significantly more active" if executives and directors didn't respond aggressively.

Peltz and Trian co-founders Ed Garden and Peter May are known for their headline-grabbing assaults on firms they see as laggards. They say they try to work with companies collaboratively. Other investors often follow well-known activists in and out of their investments.

At State Street, Trian's demands included "considering" a spinoff of investment management and servicing units. The activist firm no longer plans to push for a split even though it will keep a "meaningful" stake in State Street, said a person familiar with the move, who added that the company felt the money it invested in State Street could be put to better use elsewhere.

Related

A State Street spokeswoman said that the bank has "ongoing discussions with many of our shareholders, and we listen carefully and respectfully to all the feedback that we receive."

Trian never said how long it planned to ride out its investment in State Street or what would cause the investment firm to change direction. The October 2011 letter to State Street's board referred to Trian as "a long-term shareholder that believes in State Street's enormous potential for value creation." The bank could be valued at about $99 in 2014, the firm estimated. When Trian disclosed its 3.3% stake, those shares were valued at about $560m.

Activist investors often cash out of target companies before accomplishing their public goals. But the reversal by Trian shows the potential downside when individual investors copy moves by high-profile agitators such as Peltz, David Einhorn, William Ackman and Carl Icahn.

"It is dangerous for any investor to anticipate future price moves based on hedge fund managers talking their book," said Scott Clemons, a managing director and chief investment strategist at Brown Brothers Harriman Wealth Management in New York. "It's more akin to gambling than investing."

Ken Squire, founder and principal of 13D Monitor, a New York research firm specialising in shareholder activism, said the share prices of companies with a stock-market capitalisation of more than $1bn immediately jump by an average of about 2.6% when targeted by a top activist investor. State Street has a stock-market value of about $26bn. It was an easy target for Peltz and his investment partners because of what they said was "a culture that has prioritised growth over profitability and has led to dilutive acquisitions, inadequate cost management and significant non-recurring charges."

When Trian disclosed its stake and blasted State Street in a 40-page action plan, the investment firm said it had pushed the bank behind the scenes for about a year. State Street undertook steps advocated by Trian, including a cost-cutting plan announced by the bank before Trian went public with its own proposals. State Street also bolstered per-share profit through a share-repurchase program.

Trian criticised State Street for failing to return more capital to shareholders. The bank countered that it wanted to be more shareholder friendly but was awaiting approval from the Federal Reserve, a requirement because State Street got taxpayer-backed aid during the financial crisis. State Street launched a buyback program last year after getting clearance from the Fed.

Trian tangled with State Street over the bank's top management, with Garden and May appealing directly to board members, people familiar with the discussions said. It was a positive move to Trian when State Street's longtime finance chief, Edward Resch, stepped down last year, one of the people said. State Street said Resch's retirement was unrelated to investor discontent.